Alfred Lin, the COO/CFO of Zappos, has left the company and will join Sequoia Capital. Lin was the no. 2 executive at Zappos at the time of its acquisition by Amazon, and has had a nearly flawless resume as an entrepreneur over the years. Every company he’s worked for has been acquired, and the smallest deal was $265 million. See our post “Alfred Lin Has The Midas Touch: The Man With $2 Billion In Acquisitions Under His Belt.”

Lin isn’t leaving Zappos until the beginning of 2011.

Here’s the email Lin sent to all employees at Zappos earlier today:

Date: Wed, 24 Mar 2010 15:13:50 -0700
From: Alfred Lin
To: employees@zappos.com
Subject: Life Changing Moments

First, I’m sorry for letting you know all this information in an email. If it was doable, I would have preferred to speak to each of you personally, but that is sadly not really possible. The idea of thinking through whom I should tell first and in what order was also very agonizing. Being true to our core values, it is just a lot easier to be open and honest and let everyone know sooner rather than later. Although this still feels a little weird as I write this, we don’t shy away from weirdness at Zappos, so here it is…

First, Rebecca (my wife and my true boss) and I are getting into the baby business. Rebecca’s now 9 weeks along and so far so good. I’ve learned more about the baby business than I would have even expected, like why, in general, you might not want to tell too many people until after the first 12 weeks. Or why, when a woman reaches a certain age, her pregnancy gets classified as a high-risk pregnancy. (I am probably going to get hit over the head for that.) In any case, keep your fingers crossed and we are really delighted to share this happy news with all of you.

Over the past 2 months, Rebecca and I have talked a lot more about what is important to us and what we should do as a family. It is the general stuff you talk about, but you may only talk about superficially until it hits you that you are actually going to be a parent. As agonizing as it is for us to come to this conclusion, we really believe that the right place for us as a family is to move back to the SF Bay Area and be closer to some of our extended family.

To complicate the life discussions, if you had asked me 5 or 10 years ago what I am passionate about and what my higher purpose would be, I would have said that my calling is to help interpret the visions and dreams of entrepreneurs about how the world should be and help build businesses around those visions and dreams. So to that end, I wanted to be a venture capitalist and join Sequoia Capital. They’ve financed and helped built some really special and enormously successful companies, including Google, Yahoo, Paypal, YouTube, Cisco, Oracle, Apple, and also Zappos. I had explored joining them twice, but things never really worked out before. Recently, I went out to beers and then dinner with a few of their partners to catch up on life and in their inebriated state, they made the silly mistake of extending me a position on their team roster (although the envelope was actually marked “For Rebecca”).

You might be shocked to read that I have decided to leave Zappos. It has been a hard decision, and I am still in a bit of a daze myself, but I am also very excited. I have learned so much from all of you along our journey and I am excited to put that knowledge to work to help finance and help build companies in the special ways we have built Zappos. So the silver lining is that hopefully Zappos will give birth to other very special and enormously successful companies.

Tony, Fred and I have had a few conversations with some folks at Amazon and they are committed to helping us find the right person to fill my sample-size shoes (9D). As always with any Zappos employee, that person will, first and foremost, have to live and breathe the Zappos culture, and help continue the good work to build the Zappos brand, business, and culture, independent of Amazon.

Now that the news is out, I also want to assure you that I am not going anywhere anytime soon. I’m committed to Tony, Fred, Amazon, and each and every one of you to making this a very smooth transition. To that end, I plan to stay at Zappos through January 3, 2011. Of course, this timeline may change, since our business continues to grow fast and each and every one of you do such an amazing job that I am sure the transition can and may be completed sooner.

In any case, while parting is such sweet sorrow, it is not time to say our goodbyes yet. We have some work to do and always will…like taking first place in the Corporate Challenge relay tonight. Hope to see you there.

Update: Zappos CEO Tony Hsieh emails employees.

“We think the iPad is meant to be a Windows killer.”

Okay, yes, that’s slightly taken out of context — but it’s still one hell of a way to rile up developers. And to light a fire under some would-be entrepreneur fanboys. Here’s the full statement around the sentence:

Most people think the important thing about the iPad is its form factor: that it’s fundamentally a tablet computer. We think Apple has bigger ambitions. We think the iPad is meant to be a Windows killer. Or more precisely, a Windows transcender. We think Apple foresees a future in which the iPad is the default way people do what they now do with computers (and some other new things).

Following the iPad’s unveiling in January, people seem fairly evenly split about whether the device will be a failure, or the next big thing (I’m on the record as saying I think it will take some time to catch on, but then will quickly rise in popularity towards the future of computing). This is a smart bet for Y Combinator (and the startups that apply for this RFS) to make. If they’re right, and this is the future of computing, these startups getting to work around the time of the iPad launch (it’s still set to ship at the end of this month) should be well positioned to fully take advantage of the device.

And Y Combinator is thinking big for these startups too. It would be easy to tell companies to make apps for the iPad that are basically ports of current mobile apps, but the RFS points to this post by Facebook’s (and FriendFeed co-founder, and Gmail creator) Paul Buchheit, noting the future iPad applications may be unlike anything we’ve ever seen before.

Something else that is interesting to Y Combinator is how you get this new device in the door in businesses. They seem to think you’ll have to trick your company’s IT department:

One particularly interesting subproblem is how to introduce iPads into big companies. This will probably have to be done by stealth initially, as happened with microcomputers. They’ll have to be introduced as something individuals use, and which doesn’t really count as a computer and thus can’t be vetoed by the IT department. Don’t worry about this; it’s just a little tablet computer.

Just as iPhone app development has exploded, and Android developers are finally starting to see some real money, iPad developers are already in demand. Windows-killer or not, this is certainly an area to watch for the foreseeable future.

When we split the atom, Einstein remarked that everything changed but our way of thinking. You could make the same argument about acquisitions and option pools.

As Mark Suster recently noted, employees will never see a big payday at most startups unless the company shoots for the moon. This is probably why investors’ case for a company to sell early focuses exclusively on the founder: in most early-stage acquisitions, the liquidation preferences and deal-sweeteners only work for investors and founders.

Back when some companies sold at $50 million and others went public at $250 million, we could all agree that this was just how the cookie crumbled. But now that we live in a world where early-stage acquisitions are the only outcome to which most startups aspire, we have to re-allocate this smaller cookie.

The elephant in the room is that that founders and CEOs take almost all of it for themselves. I’ve looked at three or four deals recently as an adviser; in every case, the founder or CEO was taking more than half the company for himself, and leaving 10% for everyone else. Why aren’t we surprised when three months later that company can’t hire enough engineers?

Even when the company succeeds, the big-shot with the big payday may regret it. The difference between $10 million and $20 million in practical terms — whom you can date, where you can go, what you drive — is zero. But if you give an extra $10 million to the folks who fought shoulder to shoulder with you, everyone will feel better about what you accomplished together. You want your startup to end like Trading Places, with Eddie Murphy, Dan Aykroyd and their butler sipping drinks on the beach.

This has always been true, but now that more startups are being bought, it has become less common. Consider the proceeds of a $50-million acquisition for a 100-person company that has raised $14 million with a typical liquidation preference:

• Because of the liquidation preference, the investors get $14 million right off the top. The remaining $36 million is divided according to equity ownership.
• Investors own 50%, and get $18 million, split between two firms
• The two founders own 33%, and split $12 million
• The 3-person executive team, including a CEO if one was hired, owns 10%, and splits $3.6 million. The team gets another $3 million as a severance payment or an earn-out, to sweeten the acquisition offer.
• The remaining 95 employees split 7%, each earning $27,000. Unlike the founders, the employees have to wait until their grants vest, working at a company no longer of their choosing for two years.

Now consider what would happen if the same company raises another $10 million, expands the employee option pool to hire more executives and to support 300 people. It is worth $250 million at the time of a public offering.

• There is no liquidation preference, severance payment or earn out. Everyone is paid according to the number of shares he owns.
• Investors by now own 60%, or $167 million, split between three firms
• The two founders own 20%, and split $50 million
• The executive team still gets 10%, but now splits it among 5 people. Each executive gets $5 million.
• The remaining 290 employees own 10%, with the first 100 employees hired getting the lion’s share, of say $200,000 each.

The point is not that this is a better outcome for all. Any fool would take the higher price if he knew he could get it, but you don’t know when or whether you ever will. The point is that employees at least stand a chance at a nice gain when a company is built to last, whereas founders benefit disproportionately from a quick flip.

So in a world of more quick flips, we need to increase the size of options pools, eliminate liquidation preferences – which just get picked up in subsequent rounds of financing by new investors, who screw the old ones — and provide better acceleration for everyone.

Otherwise, nobody will want to work for a startup. But the reverse is happening. VCs want their pound of flesh, and entrepreneurs do too. In fact, the 20% of company ownership that was once considered the standard allocation for executives and other employees is now more likely to be at 10%.

If we’re all a little less greedy now, we’ll build bigger companies later and everyone will make more money, and feel better about it too.

Piazzza is still in a private beta and has quite a ways to go before public launch, but we got a sneak peek at its current progress. The site is designed to help classmates share their questions and answers in a format that’s a bit like a mixture between a wiki and a forum. Each class gets its own hub for Q&A, and students can bookmark any questions if they’re also eager to find out the answer. Multiple students can contribute to each answer in a wiki style but there’s a version history that shows what each student wrote.

Students are free to independently create Piazzza hubs for their classes, but I suspect the site will get more traction if it gets professors to sign up. When a professor joins Piazzza, their answers are separated from the students’ to make them easier to find. And professors can also look to see which questions have been bookmarked by the most students to gauge which topics they should explain better in class. So far Piazzza has opened to around 600 students across 9 classes, and plans to open to around 50 classes in a few months. Initial response from professors has been quite positive. And I liked what I saw from the service, though I think it needs to build out some technology that would make it harder to reproduce. I also think that Piazzza will really need to get a large number of professors using the service, which will be difficult.

Nath says that Piazzza was inspired by her own personal experience. As a student studying computer science at India’s prestigious IIT Kanpur, she found herself to be one of only three female students in a class of fifty. She says she was a bit shy and never really got to know many of her classmates, so when it came time to study, she didn’t get to bounce ideas off her peers. After working at Oracle, Kosmix, and Facebook, she’s now a Stanford MBA student.

ThisNext set up an entirely new parent company, Curatemedia, which will be the corporate brand that will operate both ThisNext and Stylehive henceforth.

ThisNext says its latest round comes from Clearstone Venture Partners and Anthem Venture Partners, which as far as we can tell were all prior investors in the company, and Lightspeed Venture Partners. According to the CrunchBase profile for ThisNext, entrepreneur and angel investor (and TechCrunch50 partner) Jason Calacanis was an early backer of the company and serves on its board.

According to the startup, the capital will be used to develop additional shopping tools, facilitate commerce functionality and to fuel the growth of Curatemedia into new verticals and categories. Stylehive, its first acquisition, is a fashion and beauty community and claims over 600,000 registered users. Stylehive made an acquisition of its own back in 2007, scooping up fashion social media startup Stylediary for an undisclosed amount.

In related social shopping business news, Time Inc. last week acquired StyleFeeder for “well into eight figures.”

This is a guest post by Mark Suster, a 2x entrepreneur who has gone to the Dark Side of VC. He started his first company in 1999 and was headquartered in London, leaving in 2005 and selling to a publicly traded French services company. He founded his second company in Palo Alto in 2005 and sold this company to Salesforce.com, becoming VP Product Management. He joined GRP Partners in 2007 as a General Partner focusing on early-stage technology companies.

TechCrunch Europe ran an article in November of last year that European startups need to work as hard as those in Silicon Valley and I echoed the sentiment in my post about the need for entrepreneurs to be maniacal about their businesses if one wants to work in the hyper competitive tech world.

For those not aware, an exchange fund in this regard is exactly what it sounds like: company founders are given the option to give up a small piece of the stock they own in their venture in exchange for a piece of the action of the larger pool of all the First Round portfolio companies that choose to participate. Basically, this allows these entrepreneurs to diversify their own holdings without having to sell any stock. More importantly, it lowers their risk of walking away with nothing while adding an incentive to see other companies in the portfolio succeed.

As First Round managing director Josh Kopelman writes, “One of the benefits of having a fairly large portfolio is that our portfolio companies can offer a lot of value to each other. Whether it is sharing interview techniques, technical management strategies, sales leads, perspectives on the advertising market, or doing deals – it is always great to see portfolio companies helping each other succeed.” And with this exchange fund, all of these companies have more reason than ever to help each other out.

Kopelman notes that First Round itself doesn’t receive any financial benefit from the establishment of this fund.

First Round’s portfolio includes companies like Get Satisfaction, Gnip, Mashery, RockYou, StumbleUpon, Wikia, Xmarks, Xobni, and many others. Notably, their portfolio also contains two hot location properties right now: SimpleGeo and Hot Potato. And they participated in mobile payment company Square’s big first round.

[photo: flickr/michael spencer]